I HOLD THIS TRUTH TO BE SELF-EVIDENT, THAT A DEBT CRISIS CANNOT BE RESOLVED WITH MORE DEBT

Friday, January 16, 2009

Not In My Name

The following two stories appeared today:

Jan. 16 (Bloomberg) -- The U.S. government agreed to invest $20 billion more in Bank of America Corp. and backstop a $118 billion asset pool to help the lender absorb Merrill Lynch & Co. and prevent the financial crisis from deepening. The government agreed to the rescue “as part of its commitment to support financial market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said today in a e-mailed joint statement.

* * * * * * * * * *Jan. 16 (Bloomberg) -- Russian Prime Minister Vladimir Putin's standoff with Ukraine over supplies of natural gas may have angered European Union leaders and denied heat to millions; at home, it’s winning him plaudits. .... “His message to the people is that nobody should mess with Russia when he is around.”

* * * * * * * * * *

Anyone who cannot see the connection between them probably also thinks that Joe the plumber provided a significant contribution to the pre-election political discourse. Yes, ladies and gentlemen, our economy is literally screaming out that we should get our priorities straight.

Let's look at the first story. An ADDITIONAL 138 billion dollars - nearly $1,000 from each and every American household - for just ONE bank. If there is better on-the-ground proof of the debt madness that gripped the nation in recent years, I haven't seen it.

The amount of money provided and guaranteed by We The People to this august banking institution dwarfs its entire market capitalization by 2.6 times. What are we getting in return for this extremely generous bailout, I wonder? A logical person would presume we are getting 100% of the equity, every seat on the board plus every single asset that current and past managers and board members possess. Somehow, I'm pretty sure that's not happening, eh?

Let me also point out this: when We The People have to provide this kind of capital to just ONE bank, what "financial market stability" are we talking about? It's just keeping the clinically dead on life support, using precious resources that could be much more properly utilized to revive the real economy and to provide a decent future for our children.

Where should we invest The People's $138 billion? Look no further than the second story and its tremendous implications for geopolitical energy blackmail. Are we blind, stupid or both?

Here are just two alternatives for this kind of money:

We could build at least 28,000 monster-sized 5 MW wind turbines.

We could provide every household in America with smart two-way electricity meters, the kind necessary to establish the Energy Internet.

But ooooh, noooo - we need to "save" the financial system, instead. Well, NOT IN MY NAME, ok?

I'm mad as hell (pun intended) and I sincerely hope Mr. Obama will swiftly put an end to this incredible nonsense, starting next week. But with Wall Alley insiders Geithner and Summers calling the econ-shots, I highly doubt it. These guys' thinking is as dead and "inside the box" as Schrodinger's cat after the lid is opened. What we really, really, really need is people that get it.

I will once again recommend two books that I consider ESSENTIAL READING for anyone who is even remotely concerned about our future.

1. If they did not do this, what would happen to legitimate/viable small business payroll and purchasing funds, etc...? i.e would there be secondary collapses?

2. Are there enough scientists in the US immediately available to do this? Are they truly immediately available? Isn't everyone who would have once created such an infrastructure 30 years ago (when people studied science) now a quant on "Wall Alley" (like yourself) or an MBA or lawyer or physician? The people (and therefore the government) want their immediate gratification for its "me now" immediate culture.

Russia a joke? You can't be serious. Russia was an empire before the US was colonised by European carpetbaggers. Never, never underestimate a former empire - their leaders do possess fully functioning testicles! They also possess the other piece of adjoining equipment - and will use it if necessary. Be warned!

Make no mistake: the bailouts ARE NOT bailing out small and medium ANYTHING. They are designed to prevent the mega-rich from becoming merely rich. Here's an alternative bailout: have FDIC guarantee all deposits up to $500,000. Period. End of all other "bailouts".

Re: "Are there enough scientists?"

Yes, of course. In any case, transiting to a green/sustainable economy is a long term process. We can educate millions of new scientists and engineers, plus train many more green-collar workers.

"Where does a man who needs his own offshore drilling platform just to keep the east wing of his house heated get the balls to write a book chiding America for driving energy inefficient automobiles? Where does a guy whose family bulldozed 2.1 million square feet of pristine Hawaiian wilderness to put a Gap, an Old Navy, a Sears, an Abercrombie and even a motherfucking Foot Locker in paradise get off preaching to the rest of us about the need for a “Green Revolution”? Well, he’ll explain it all to you in 438 crisply written pages for just $27.95, $30.95 if you have the misfortune to be Canadian."

Anon, I chuckled as I read your NY Post link. I can vouch for the the enormity of Friedman's home (though I don't think it is anywhere close to 114,000 square feet) . The inconsistency between his walk and his talk HAS NOT been missed by most of his neighbors.

I am surprised that you ever considered Obama as an agent of change (or am I missing something). He is a replacement figurehead. There is no difference between dems and reps. They are all the same. Whether they support gay marriage or abortion is a red herring for the sheeple.

Governemnt of the rich, for the rich, by the rich. That is what we have become. Unfortunately, I don't know what we can do about it.

gigi, you could do what any rational person does when forced to do something bad, like play poker with a bunch of scoundrels who are using a marked deck-'play' as little as possible. With every failout, pull more of your money out of the system. The fiat dollar banking system is unsustainable. The system is breaking down. Take what you can off of the table!

It is disappointing to see Obama continuing in the same direction as Bush was going: bailing out financial institutions one after the other.Why save Bank of America, Citigroup and the like?Shareholders have already lost most of their money. Debt holders sure would also lose a portion of their investment.

I suspect Obama is afraid to do another "Lehman Brothers" case where the companies was let fail and the credit market went into hibernation.

"That’s because the author’s wife, Ann (née Bucksbaum), is an heir to the General Growth fortune. In the past year, the couple—who live in an 11,400-square-foot mansion in Bethesda, Maryland—have watched helplessly as General Growth stock has fallen 99 percent, from a high of $51 to a recent 35 cents a share. The assorted Bucksbaum family trusts, once worth a combined $3.6 billion, are now worth less than $25 million."

I am a great believer in making up my own mind AFTER listening to someone - not BEFORE.

For example, I did not like, or buy into, his "The World Is Flat" concept. But I decided that after I read the book. Though he DID have some interesting things to say, I found the concept flawed - from a holistic point of view.

This is not the case for his new book. He is right on the big picture and has LOTS of interesting things to say. He does miss a few major points (e.g. What happens with monetary policy under a "green" economy? And it's pretty absurd to expect Green Permagrowth.. etc).

Let me give you a "profitable" example: by reading his book I discovered the importance of smart electricity meters in establishing the energy internet. I looked up the manufacturers of such eqpt. and did a deeper analysis of their business. It's good.

Lo and behold, their stock price performance in the last few months has been rather excellent.

That's just one example..

Preconceptions are not only unfair but can also be very unprofitable. SOmetines, even dangerous.

Here is some history:

The sea Battle of Salamis in ancient Greece: The Athenian general Themistocles insisted that it should take place in the sea narrows between the island of Salamis and Attica, where the Persians' huge fleet of big, unwieldy ships would have little advantage.

The allied Spartan general got so angry at this suggestion that he actually took a stick and hit (or attempted to hit) Themistocles.

The Athenian famously replied:"Hear me first and then you may hit me".

I guess Thomas Friedman, who I find quite irritating, is (as per his personal living arrangements) better named, Thomas Fraudman.

In the meantime, I'll try to separate the (obnoxious) self styled deep thinker from the obnoxious man's message.

One really wonders when we Americans will respond forcefully-perhaps never-to the financial rape we are being subjected to. While so many worry about, for example, taxes, the process of complete currency debauchery (the most lethal tax possible) is well underway. Folks, forgive me for my constant repetition, but one simply can't own enough items that will maintain value when the dollar swirls the bowl on the way to oblivion.

History tells us that oblivion will happen quite suddenly. There will be minimal warning as, literally, overnight, we will, I predict, experience a dollar devaluation that will lop off, oh, say, twenty to thirty percent of the greenback's purchasing power. That will be the beginning not the end of an Argentina/Weimar like process that will make events to date seem almost stress free by comparison.

But let me switch gears ever so slightly for a moment since Russia is part of the day's discussion. I'm going to ask you to consider that the temporal correlation between the over half year long beat down of oil, the most important pillar of Russian financial wherewithal, came about at approximately the same time that Russia flexed its muscles on the former Soviet Republic of Georgia. Coincidence? Not likely.

Not to put too fine a point on it, but the U.S. is at war, with Russia, and to a lesser extent with China and some smaller but still formidable nations. Watch what happens in '09. Recall that we were warned "Say it ain't so" Joe Biden, and Colin(oscopy) Powell about someone or something testing Obama's mettle soon after the inauguration.

I posit that the aforesaid know exactly what that mettle testing will consist of because it is impossible to know with certainty that some big ugly is coming your way, and yet have no idea (despite their reticence at giving details) about what that something is. It's kind of like knowing there are WMDs in Iraq but having no clue where they are. The second circumstance, as Hans Blix observed, can not follow the first.

Do not, I repeat, do not be fooled by the meaning of the event that was (sort of) foretold by Biden and Powell. Whether it is a military event, or a more direct assault on dollar supremacy, the point is it will be about a takedown of our reserve currency status. I maintain that the primary reason, besides logistics, inertia, and the present global collapse, which are by no means negligible factors, keeping the status quo afloat, no pun intended, is abject fear of the U.S. military.

The moment it appears that the U.S. military has, for whatever reason, lost its mojo, the game is over for the dollar's reserve currency status. Let the mettle testing begin.

Government is never a Investment Vehicle. Global Capital goes where it best treated. This translates to malinvestment by one or both as such. We need a fulcrum of reason to the Commons. Hmm, off grid is all I can posit for percentage of change. Read more to think better.I respect and regard the comments from so many outstanding facets here. God Bless Freedom.....

About Me

I was educated as a chemical engineer but spent almost my entire career in finance, particularly in money, FX and bond markets. The name stands for Hell-as-IOUs and the picture points to Quixotic endeavors.